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Good day, and welcome to the Howmet Aerospace Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Paul Luther, Vice President of Investor Relations. Please go ahead.

Thank you, Drew. Good morning, and welcome to the Howmet Aerospace Third Quarter 2025 Results Conference Call. I'm joined by John Plant, Executive Chairman and Chief Executive Officer; and Ken Giacobbe, Executive Vice President and Chief Financial Officer. After comments by John and Ken, we will have a question-and-answer session. I would like to remind you that today's discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these projections listed in today's presentation and earnings press release and in our most recent SEC filings. In today's presentation references to EBITDA, operating income and EPS mean adjusted EBITDA, excluding special items, adjusted operating income, excluding special items and adjusted EPS, excluding special items. These measures are among the non-GAAP financial measures that we've included in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release and in the appendix in today's presentation. In addition, unless otherwise stated, all comparisons are on a year-over-year basis. With that, I'd like to turn the call over to John.

Thank you, PT, and welcome to the Howmet Q3 call. Let's start with the company highlights on Slide 4. Q3 was a very strong quarter for Howmet. Revenue growth continues to accelerate and was up 14% compared to 8% in the first half. Within this revenue growth, Commercial Aerospace increased 15% and within this number, commercial aero part sales increased by 38% for a total spares increase of 31%. EBITDA was up 26% and operating income up 29%. Cash flow was also healthy at $423 million after capital expenditure of $108 million. Year-to-date capital expenditure is approximately $330 million. Regarding share buyback, $200 million of cash was deployed to buybacks in Q3 with an additional $100 million buyback in October. October year-to-date buyback is now $600 million, which is $100 million higher than the 2024 full year. We also paid off the balance of $63 million of the U.S. term loan early, which was due in November 2026 and with the resulting net leverage now stands at 1.1x net debt-to-EBITDA. Dividend payments were also increased in August by a further 20% versus the prior quarter and earnings per share increased by just over 34%. Other commentary, which may be helpful is that working capital days improved year-over-year, allowing for the increased capital expenditure for future growth and all within the free cash flow number previously referenced. Headcount did increase by a further 265 people, mainly within the engines business as we staff our new manufacturing plants. As planned, the increase in headcount has slowed as we go into the second half, although we envisage hiring again as we pick up in early 2026. Now let me turn the call over to Ken to cover the markets and segment performance.

Okay. Thank you, John. Let's move to Slide 5. So end markets continue to be strong, with total revenue up 14%. Commercial Aerospace was up 15%, exceeding $1.1 billion in the quarter. Commercial Aerospace growth is driven by accelerating demand for engine spares and a record backlog for new, more fuel-efficient aircraft with reduced carbon emissions. Defense Aerospace growth continued to be robust at 24%. Growth was driven by engine spares, which increased 33% and new F-35 aircraft builds. As expected, commercial transportation was challenging, with revenue down 3% in the third quarter, including the pass-through of higher aluminum costs and tariffs. On a volume basis, wheels volume was down 16%. Finally, the industrial and other markets were up a healthy 18% driven by oil and gas, up 33% and IGT up 23%. In the future, it's likely that we will combine oil and gas and IGT when reporting revenue by market. The definition of oil and gas versus mid- to small IGT has become somewhat blurred since many turbines now have increasing end use for data centers. So in summary, continued strong performance in Commercial Aerospace, Defense Aerospace and Industrial, partially offset by commercial transportation. Within Howmet's markets, the combination of spares for Commercial Aero, Defense Aero, IGT and oil and gas was up 31% in the third quarter. Now let's move to Slide 6. So starting with the P&L. Q3 revenue, EBITDA, EBITDA margin and earnings per share were all records and exceeded the high end of guidance. Revenue was up 14%, EBITDA exceeded $600 million as it outpaced revenue growth and was up 26%. EBITDA margin increased 290 basis points to 29.4% while absorbing the cost of approximately 265 net headcount additions. Earnings per share was $0.95, which was up a solid 34%. Moving to the balance sheet and free cash flow. The balance sheet continues to strengthen. Free cash flow was excellent at $423 million. Free cash flow included the acceleration of capital expenditures with $108 million invested in the quarter and approximately $330 million year-to-date, which is higher than the full year 2024 capital expenditures. About 70% of the capital expenditures year-to-date is for our engines business as we continue to invest for growth in Commercial Aerospace and IGT. Investments are backed by customer contracts. Quarter-end cash was a healthy $660 million. Year-to-date, debt has been reduced by $140 million as we paid off at par the U.S. term loan, which was due in November of 2026. The early prepayments will reduce annualized interest expense drag by approximately $8 million. Net debt to trailing EBITDA continues to improve to a record low of 1.1x. All long-term debt is unsecured and at fixed rates. Howmet's improved financial leverage and strong cash generation were reflected in S&P's Q3 rating upgrade from BBB to BBB+, which is 3 notches into investment grade. Liquidity remains strong with a healthy cash balance and a $1 billion undrawn revolver, complemented by the flexibility of a $1 billion commercial paper program, both of which have not been utilized. Regarding capital deployment, we deployed approximately $770 million of cash, common stock repurchases, debt paydown and quarterly dividends year-to-date through September. In the quarter, we repurchased $200 million of common stock at an average price of approximately $182 per share. Q3 was the 18th consecutive quarter of common stock repurchases. The average diluted share count improved to a Q3 exit rate of 405 million shares. Additionally, in October, we repurchased $100 million of common stock at an average price of approximately $192 per share. October year-to-date common stock repurchases are $600 million at an average price of approximately $156 per share. Remaining authorization from the Board of Directors for share repurchases is approximately $1.6 billion as of the end of October. Finally, we continue to be confident in free cash flow. We increased the quarterly dividend by 20% in the third quarter to $0.12 per share, which is up 50% higher than Q3 of last year. Now let's move to Slide 7 to cover the segment results for the third quarter. The Engines products team delivered another record quarter for revenue, EBITDA and EBITDA margin. Quarterly revenue increased 17% to $1.1 billion. Commercial Aerospace was up 13%. Defense Aerospace was up 23%. Oil and gas was up 33% and IGT was up 23%. Demand continues to be strong across all of our engines markets with strong engine spares volume. EBITDA outpaced revenue growth with an increase of 20% to $368 million. EBITDA margin increased 80 basis points year-over-year to 33.3% while absorbing approximately 265 net new employees in the quarter. Year-to-date, engines have invested in approximately 1,125 incremental headcount, which has a near-term margin drag, but positions us well for future growth. Now let's move to Slide 8. The Fastening Systems team also delivered a record quarter for revenue, EBITDA and EBITDA margin. Revenue increased 14% to $448 million. Commercial Aerospace was up 27%, Defense Aerospace was up 2%, General Industrial was up 3% and Commercial Transportation, which represents approximately 12% of Faster's revenue was down 17%. EBITDA continues to outpace revenue growth with an increase of 35% to $138 million, despite the sluggish recovery of wide-body aircraft builds along with weakness in commercial transportation. EBITDA margin increased a robust 480 basis points year-over-year to 30.8% as the team has continued to expand margins through commercial and operational performance. Now let's move to Slide 9. Engineered Structures had a solid quarter. Revenue increased 14% to $289 million. Commercial Aero was up 7% and Defense Aerospace was up 42%, primarily driven by the end of the destocking of the F-35 program. EBITDA outpaced revenue growth with an increase of 53% to $58 million. EBITDA margin increased 510 basis points to 20.1% as we continue to optimize the structures manufacturing footprint and rationalize the product mix to maximize profitability. Finally, let's move to Slide 10. Forged Wheels revenue was essentially flat as a 16% decrease in volume was largely offset by higher aluminum costs, tariff pass-through and favorable foreign currency. EBITDA was strong at $73 million, an increase of 14% despite a challenging market. EBITDA margin increased 350 basis points to 29.6%. The unfavorable margin impact of lower volumes and higher pass-throughs were more than offset by flexing of costs, favorable product mix driven by our premium products and favorable foreign currency. The Wheels team has continued to expand margins despite market metal cost and tariff uncertainty. Now let me turn it back over to John.

Thank you, Ken. Let's move to Slide 11 to discuss the outlook. In summary, before I go into details, the outlook is solid. Air travel continues to grow year-over-year after a solid summer period. The backlog of commercial aircraft extends for many years, even after assuming increases in build rates throughout the next 5 years. The current aircraft fleet has aged. These factors combined to provide both healthy OE demand and the growing demand for aircraft aftermarket parts, especially in the engine for wearing parts, namely the turbine blades in the hot gas pass section of the engine. Defense sales continued to be strong with steady F-35 OE sales, plus some increase in legacy fighter jets, namely the F-15 and the F-16. This is also combined with growth in defense spare sales. In oil and gas, the demand is steady, while growth in IGT is extremely strong, again in both OE and aftermarket sectors. The part of the market, which I have not previously made much commentary on is the midsized turbines of up to 45 megawatts where growth of both aero-derivative engines and dedicated midsized turbines is expected to grow for many years. This is mainly the result of data center build-outs and the need to supply these data centers with either independent fundamental electricity supply or with very fast-acting turbine response to ensure uninterrupted supply from the grid and from utilities. It is increasingly difficult for us to separate the end market for these turbines between oil and gas compared to IGT. Commercial truck volumes continue to struggle with smaller fleets, in particular, not buying trucks due to the low freight rates and also combine this with a large price increases for Class 8 trucks, principally due to tariffs. The tariff changes continue to produce uncertainty for Howmet. However, the net tariff drag continues to be small at around $5 million plus or minus as discussed in the last earnings call. The revenue outlook for the balance of 2025 has increased compared to the prior guide, benefiting from the stronger Boeing 737 builds and also engine spares. The build-out of our footprint with the 5 new manufacturing plants or extensions continues. The most vital immediate part of our expansion going into 2026 is the new Michigan Aero Engine core and casting plant, which is on track with the machines now building some parts. There remains a lot more equipment to be installed during the next 6 months, but everything is currently as it should be. The new plant we've installed for tooling is now equipped and staffing well underway. Being a little bit more specific regarding the 2026 outlook, we see revenues of $9 billion plus or minus, which is an increase of about 10% year-on-year. This number will be further refined in our February 2026 earnings call, where we will also provide more detailed guidance. Moving to the fourth quarter of 2025. We see revenue to be $2.1 billion, plus or minus $10 million, EBITDA of $610 million, plus or minus $5 million, earnings per share, $0.95 plus or minus $0.01. And for the year, the numbers are -- revenue is $8.15 billion plus or minus $10 million, EBITDA at $2.375 billion, plus or minus $5 million; earnings per share of $3.67 plus or minus $0.01 and free cash flow of $1.3 billion, plus or minus $25 million. In summary, 2025 is another good year for Howmet with free cash flow guided substantially higher than the last earnings call, even after the higher capital expenditure, which is there for future growth in the company. Before moving to Q&A, I did want to thank Ken Giacobbe for his years of dedicated service. It's been quite the journey for Ken and him being my partner in all of this from his days at Alcoa to Howmet, which interestingly, as 1 of the 3 parts of former Alcoa is now worth more than the single Alcoa company ever was. All the very best to Ken in his well-earned retirement.

Thank you, John.

I just want to offer you the opportunity of adding any comments.

Yes John, appreciate the kind words and appreciate the partnership. It's been a privilege and a pleasure to work with you, the Board of Directors and the Howmet team. Results have been remarkable. I think a lot of that is driven by the positive culture that you had built over the years. That culture is one that we talk about quite a bit, one of focus, innovation in terms of everything we do, empowerment, accountability, shared purpose and winning, which is quite refreshing. As I look forward, I believe Howmet is well positioned for the future with a clear, clear path forward and an exceptional leadership team at the helm. So as I conclude my 20-year -- 21-year tenure with immense gratitude and also confidence in Howmet's future, I want to thank you for the opportunity to be part of such a remarkable organization. So wishing you and the team continued success. So I guess, Drew, we could move to Q&A.

[Operator Instructions] The first question comes from Kristine Liwag with Morgan Stanley.

Ken, congratulations on your retirement. Thank you for all the thoughtful insights over the years and hope you've got something very fun planned. So maybe, John, the investments in technology you've made in Aerospace has yielded in Howmet being a clear leader in this area, especially for the hot section of the jet engine. Now pivoting to this data center build, we're starting to see this industry really gain a lot of traction. You've called out CapEx increases last quarter and also this quarter. Can you just take a step back and provide us more color on what the competitive landscape is like for turbines and IGT? How differentiated is your technology, the pricing environment? And what's your expected returns in this sector and how that compares with aerospace?

Okay. So that's a very broad question. It gives me the opportunity to talk now for at least an hour...

I'll keep it to that question though, John.

Yes. This is only one question. So first of all, clearly, this build-out of data centers and the requirement for electricity to not only, I'll say, drive the processing and the microchips that for these advanced microchips that are being installed, but also the electricity required to call them is producing an extraordinary level of demand, which I think we know that the utility companies themselves and the grid is struggling to cope with and how can that be satisfied. It did change again with the new incoming administration in the early part of this year when there's a greater emphasis on fossil fuels and really the natural gas being the technology of choice compared to renewables. And so that has caused us to think again regarding the investment profile for this business. So the back class of the fundamentals appear to be well set. Certainly, you look for the next few years, the build-out and the requirements are extraordinary and the question remains, of course, what would it look like at the turn of the decade in terms of each future growth. But having said that, I do think these data centers, which are there not just for the introduction and use of AI, but also just fundamental requirement from storage means that, that electricity demand will be there and so solid and gives us a lot of confidence to invest albeit we don't have the same clarity regarding backlog numbers that we have in the Commercial Aerospace market. So you don't quite have that same, I'll say, clarity and visibility into the back orders. So it's caused us to keep rethinking our investments, and we've picked it up again this year. And you've seen with our guided capital expenditure increases in investments that we are making. And we expect that CapEx in 2026 and indeed going into 2027 will be also at high levels while not disturbing what our fundamental aim is, which is to convert 90% of our net income into free cash flow. And so it's a tall order at the same time, we're excited to be part of this growth opportunity. When I think about sort of what's happening, there is growth in both the large industrial gas turbines that you see bought by utilities, which provide the electricity, which is transmitted over the grid. But now given the large demand is that there are gas turbines being installed at the data center sites or clusters of data center sites in a centralized facility to provide that underlying electricity. And then beyond that, is that there's backup to all this or in the case of where you just can't guess a large gas turbine at the moment because they're quite scarce and orders are now going out. If you place a new order, you're not going to get that big land-based gas turbine until probably into the 2030 or beyond is that as a case where a lot of midsized turbines are now being installed, not just for the fundamental production of electricity, but also because they are very fast reacting is that it ensures that the supply of electricity to the data center is uninterrupted. And therefore, it's providing a lot of stimulated demand for the aero derivatives. And in fact, if you look at the -- I think results this week of Caterpillar, they are seeing that, and they're one of our major customers in those midsized turbines. So it's quite exciting. And then in terms of technology, it's going very much along the same lines that we have in -- had done in aerospace where we have moved or are moving from turbine blades, which are solid to turbine blades, which are increasingly core. And what I mean my core is that you have air paths through those turbine blades to provide them with cooling air such that those turbines can be run at higher temperatures. So it's very much going along the evolution path that we've had in the aerospace world. And so as we move forward over the next, let's say, 2, 3, 4, 5 years, and is happening right now is that we're installing additional capabilities to be able to produce the sophisticated fine tolerance cores that enable that next level of technology to be achieved and that's both for the midsized turbines and indeed for the very large turbines that utilities tend to buy. If you look at the most recent development, without giving you specific market numbers or customers, some of those now initial turbine blades are as sophisticated as they possibly most sophisticated commercial, not necessarily military but commercial aerospace use in terms of the numbers of, I'll say, certain time air pathways through those turbine blades. So -- and of course, with that goes content and value because it again is producing the level of capability and electricity generation well above what you could have achieved with turbines in, let's say, 5 years ago or 10 years ago. So it's a pretty exciting landscape in terms of playing to our strength of the more sophisticated technology. It's causing us to expand. And you've heard me talk about the new manufacturing plant that we have or are building, in fact, at the end of this year, the structure will be complete to enable us to put new capabilities and, for example, new casting machines into that plant in the early part of 2026 to bring capacity on, not just for our customers in Japan, like Mitsubishi Heavy but also other customers like Siemens and GE and Ansaldo, et cetera. So -- and we're doing that, plus we're also expanding our plant in Europe significantly and also placing new capital in the existing footprint of our U.S. facility. So we're expanding in each of our 3 major sites where we produce gas turbine parts and really excited to be part of this journey which really is evolving very much in the same way as aerospace business, not only for those midsized turbines but also now for the very large gas turbines. And so it's a pretty exciting time for us. to be able to build out this business to be a very significant contributor for the company. So I'll stop there just in case I'm now getting too carried away with it. But I just want to make sure it hit the point of your question, Kristine.

The next question comes from Myles Walton with Wolfe Research.

John, I'll try to ask a question that won't let you go on too long. But the end market implied growth in your $9 billion, could you share that as well as perhaps you've been running, obviously, well ahead of long-term incrementals the 30% to 40% that you had previously spoken of long been blown past. Is '26 another year of very high incrementals as we've seen in the last couple of years?

Let me deal with your latter point first, regarding margins and incrementals. I think as you know, I don't really give color on that at this time of the year, that's more for the February call. So I'll certainly reserve any profit guidance for February. I note that in Q3, our incrementals were, again, quite healthy at 50%. Obviously, we've given you a guide already for Q4. So I think it's a similar number for Q4, but Ken could always correct me on that. So it's pretty strong for this year. Next year, I guess, when we come up with a number, I mean it will probably underwhelm you because it always does. We don't seem to be able to satisfy your expectations. At the same time, I think that whatever we come up with will be a very satisfactory in 2026. So it's a long way of talking about the subject for a minute or 2 without actually saying much at all. In terms of the first part of your question, which was where did we see end market growth. So my sense is that getting too deep into the guide at this point it's an approximation. I think Commercial Aerospace will be stronger in 2026. So I think the build-out of narrow bodies, both for Airbus and for Boeing will be stronger in 2026 than it has been in 2025. And also the likelihood of the widebodies, particularly the Airbus A350 and the Boeing 787. I think both of those are going to be at a higher build rate than this year. So I'm pretty optimistic about Commercial Aero. So I see that being a few percentage points as an absolute higher than in 2025. In defense, coming off this year, which is pretty strong at plus 20%, I can see us having a mid-single digits increase again on top of that into 2026. I'm pretty confident about our positioning on the defense side. And on the -- I was going to call it the industrial segment, which will wrap up 3 segments, which is the gas turbine one, which I think you can sense is going to be at the high end, the oil and gas which would be in the middle and then general industrial, which should be at the lower end. I'll combine all of that and say, basically just getting into double digits as an increase. So that will be the sense I have for the underlying big segment commentary for next year. But while I'm on a role, I'll just talk about inside Commercial Aero because I know you've got a follow-up with the question like what's the underlying assumptions. So I think Boeing 737 will be higher. So, I'll say, I use 40 or getting into the 40s as an approximation, the A320 into the early 60s or maybe, I don't know, 62, 63, 787, I'll use 7.5 and the A350, maybe 6.5, could be 7. So it's in those sort of areas. So it's giving you directionally what I think you want without getting too specific because, again, I'd like to see how people close out, our customers close out this year, what the stated inventory is, as you know, certain of our airframe customers have been taking the inventory down. And I have to think about the robustness of their build while they've been taking inventory down and the consistency. And hopefully, we're going to see improved consistency into 2026 in the same way we've seen it for the last 2 or 3 quarters, where it's become somewhat -- a little bit more predictable.

The next question comes from Ronald Epstein with Bank of America.

This is Mariana Perez Mora for Ron today. First of all, congratulations, Ken, on the retirement, and congratulations on your contribution to the company and the industry in general. I'd like to follow up on -- try to dive deeper as we think about next year into 2 things. Number one, how we think about, I'll say, on the commercial aero part, destocking trends and aftermarket trends or spare engine trends despite like this ramp that we are all expecting on OE. And the second one is when you think about IGT, how dependent the guidance is on the capacity that will be coming online end of this year and mid next year? How sensitive is guidance to the timing of that like incremental capacity?

Okay. Let's deal with the IGT part first and then go back to commercial aero. This year, we've seen the benefits of both small increases in gas turbine build at the large land-based turbines, probably a slightly higher build in terms of those midsized turbines in percentage of increase. But this year has also featured an increase in spares as the existing fleet of both types of turbines and maybe the midsized turbines being very strong in terms of their space requirements because those fleets are working harder. So that gives you a picture there for this year. When we move into 2026 and into '26 and '27, again, we're going to be -- we're going to see fundamental demand and this demand in turbine builds are expected to increase again into '27 beyond '26. On the OE side, it's going to be obviously a factor of are all the turbines going to be actually be built that are planned and how we are able to step up to those builds. And so I see that as -- whereas this year, I'd say, been slightly stronger on the spares and -- but still solid on the OE side. And next year, I think we're probably going to see a higher vector compared to this year on the OE demand but still strong spares demand. So again, I'm feeling pretty positive about those segments. It's difficult to judge exactly yet which one we will win in terms of those 2, if there was a race between them. Moving back to the commercial aero question. I've already given you a commentary regarding what I think build rates are, I think destocking essentially is finished this quarter, and I don't really see much evidence of that remaining if anything, it could only be a little bit left in the titanium area where people build up stocks because of either lack of build or trying to provide security stocks in the case of what happened after the Russian invasion on Ukraine and the supply issues out of BSMPO. In terms of spares and engine spares, I think the 2026 is going to be another very strong year for that. If you deal with CFM first, then I envisage that it's going to be strong on the CFM56 because the existing fleets continue to work hard. There's still a backlog of parts and the engines are going to be put back on wing and into the air. And similarly -- and maybe even a higher area for those B2500 and the GTF engine. So spares demand is going to be very strong. And as these jet engines transition to the new, I'll say, versions of them, so the new parts, which have got into the LEAP-1A and the ones which should go into the 1B next year and then into the GTFA then there'll be not only the OE demand but also the retrofit requirements for improving the robustness of those engines and to get a lot of engines back on wing. So I think I covered it.

Yes. And if I may squeeze another one. It looks like Asian history now because of how hectic the year is, but it wasn't long ago that you guys have to call for force majeure on the tariffs and raw materials. Could you mind like giving us some color around like how is that today? And how you think about risks on raw materials and pricing and pass-throughs going into next year?

Well, I think we're pretty solid in terms of pass-through capabilities, either under existing contracts or with new agreements that we've made with our customers for each of our end markets. And so what was the gross effect that we could see, I think, originally, it was up to $100 million that with the delayed implementation and certain exemptions that have been provided maybe that number came down. And then recently, we've seen some of the tariffs increase again, thinking now on the Class 8 area. So it's been moving around and still continues to move around even as recently as yesterday. But the net effect is still sub $5 million for the year, and that essentially is the drag that's just in terms of timing of recovery. So as an issue for Howmet, it really is, I'll call it a nonissue, sub-$5 million, and therefore, hopefully, it disappears into the woodwork in 2026.

The next question comes from Sheila Kahyaoglu with Jefferies.

Congrats, John, on great results and Ken, on your retirement, although I'd argue with Kristine that working with John is plenty of fun. So I don't know what you'll do in retirement, that's even better. Can I...

I can agree with that, because you say stop there and Ken what are you thinking.

Ken, I'm going to actually put this one on you. Just given, I thought the comments on Howmet being more valuable then the 3 pieces was very interesting. So over the next few years, where do you see Howmet's end state just given where the balance sheet is, leverage is at record lows, margins in each segment are terrific. So lots of areas of expansion. How do you think about Howmet over the next few years?

Yes, Sheila, I think I'm going to have to let John answer that one. I don't want to get fired this late, right?

So I think the -- if you look at the journey that we've made over the recent years, from trying to install a performance culture through, I'll say, more difficult times of COVID. It came upon us fairly quickly and then trying to really invest in our technology and then really address growing the company. And I think the growth trajectory is very encouraging. And so while we've been like what I call -- walking on chewing gum or doing the -- and it's not at all, we've been growing and improving our margin. And my thought is that we'll continue to do that. But of the value equation, then I think maybe the growth will be a more significant factor over the next 5 years than the margin factor, and that's not to say that the margin won't improve, that's what we come to work for every day to try to achieve that. I think there's lots of things yet to further expand in terms of whether it's increased automation capacities that we have or capabilities that we have in the company. There's the thing which we've been talking a lot about recently about how we can use the artificial intelligence and machine learning in our manufacturing plants. So it isn't just basic automation, it is data collection at extremes that we've never seen before. And when we have the opportunity next March, where we're planning on an Investor Day or Investor Technology Day, but basing it at [indiscernible] plant again and we'll showcase the new manufacturing plants that we have there. And beyond just the fundamental increase in robotics, which I think people have seen. it's also at a high level. It's another stage beyond that. But for me, probably even more important than that is that the what we've termed the digital thread that we've been building throughout the manufacturing process from the chemical compounding right the way through core prep and then into shell and casting and being able to provide data and individual traceability right back to which fundamental elements for each of our parts that we're manufacturing. And then with that huge amount of data that we deal, we are positioning ourselves to collect, is that using various techniques to be able to use artificial intelligence because the sheer scale of data we have or we've got to have available to us takes us something beyond any human being could possibly analyze data crunch and do. So I think that's going to lend towards a further improvement in our ability to improve yields and an improved yield, of course, goes with economics. And then with the improvement in the yields, we can take the design tolerances to yet a further level, which will provide again for the next generation of content improvement and fuel efficiency for both, not only our aerospace segment but also the gas turbine segment. So I think all of that coming together and using a combination of automation and AI and all the things we're trying to position for is going to be good for, Sheila.

The next question comes from Noah Poponak with Goldman Sachs.

Congrats, Ken, on the retirement and the evolution of this financial model. I wanted to come back to incremental margins. Guys, you had this historical framework a few years ago of 30% to 35% on the incremental and you've now created this kind of wall of tough compares, but you've now had 2 quarters in a row where you've had a well above the 30% to 35% despite comparing to well above that. And so I was hoping to better understand is price or productivity, the bigger driver at the moment. And then as you move into 2026, can you stay above that historical targeted range despite the tougher compares?

Yes. I mean, again, I'm going to try to steer away from 2026, Noah, at this time. And any number is always going to be a combination of things. And in our incrementals, we've got obviously some leverage for volume. We've got the benefits of automation. We've got the benefits of yield. We've got the benefits of content and also, we have the benefits of price as well. So we have many individual threads going into that. And the only, I'll say, parts which are currently negative would be the fairly high ingestation of labor, which takes, I think, as you know, a fairly significant trading time, never mind just the cost of recruitment. And there's a slight degradation initially from those employees in terms of yield. And so what do I expect going forward is that hopefully, the drag of that labor becomes a little bit less because the denominator gets higher. But my guess is that we're probably going to have to hire a net higher number of people ultimately as we move through 2026 both for priming the pump again at the start of the year as some of the equipment I talked about comes in, plus the fact that we also envisage having to step up again into 2027. And so if you would ask me to call it today, I'd say we'll probably end up with a higher net number. And so you've got that which will weigh upon us while still hopefully achieving all of the productivity improvements from the threads of automation and the new equipment coming in with a much higher level of, I'll say, again, automation that we had in the past. So there's such a lot of moving parts. It's difficult to pass all of that out. And then the only thing I haven't mentioned is the content on average will improve again as we move into next year because we'll be moving from one generation of technology to the new generation technology at some point during 2026 for the LEAP 1B program as an example. And then, of course, we have the GTF advantage, which is also being made today in fairly small lots. But with that significantly increasing as we go into 2026, we need to get to a much fuller run rate in 2027. So there's so much going on. And with the buildout, it's really difficult to give you. I just feel at this point, we've managed our way through fairly well with really healthy incrementals. And I mean anything above -- I mean, if our EBITDA is at 29%, anything above that is incremental beneficial to the company. So I'm feeling as though we're going to be above that for next year. But without -- I'm not willing to comment yet about whether we're going to be on par with our incrementals this year or not or whether inevitably, there has to be some flattening of that. That it's just -- I don't -- wait till February to comment about that.

The next question comes from Scott Deutsche with Deutsche Bank.

John, I think you said CapEx will remain at high levels into 2026 as well as into 2027. So just to put a finer point on that, should we be thinking about flattish CapEx in those years relative to 2025? Or could that increase? And then does the mix of that CapEx shift more toward IGT and midsized turbines? Or is the majority of it still focused on aerospace?

In terms of absolute numbers, the majority is absolute dollars will still be higher for aerospace. But I think there'll be a percentage as a mix of a total. I think that the investments we're making in both the large and midsized turbines will possibly be a higher relative percentage than it is this year. I think the one question I forgot to answer on the way through the Q&A section was what do the economics look like for these turbines? And essentially, it's the same as for aero. So if you were to pick up both our absolute and our incrementals for either the IGT part of our business, both large and midsize or aero, and they're pretty much the same. So it doesn't really matter what, let's say, the color of CapEx, which segment it goes into because they're both very good. And for me, it's more the fact that we have the opportunities. And it is just -- as I look forward, we, I'll say, more or less framed out, well, I think we're going to do in 2026. But every time we sort of examine or have new conversations with our customers, in fact, I was in Europe for the first part of this week. And thank goodness, I got back last night to be able to do our earnings call is again, is only a conversation about improvement in opportunities which are there before us. And so what causes me to believe that 2027 is also going to be significant number for CapEx. And so I -- this year as we've moved up from what we thought was going to be, I don't know, 350 to 370 or something like that, maybe a bit lower on that side. We're now probably going to burst 400. But as you see in 400 but with actually improving cash flow is that I think the greatest pleasure that I'm going to have next year is being able to deploy that amount of capital or more. And we don't deploy capital just because it's fun to do, it's hard work, but it's going to be backed by clear-eye thinking about customer utilization, customer commitment and economic return. And I think you know we have pretty high hurdle rates for that to deploy that fresh capital. So my view is it's a good thing. If we can spend 2025, I think 2026 and more in 2027 and more, then that's going to be a good thing. And we just see increasing opportunities to build out the business. There's no further questions or Drew [indiscernible]. PT, I think we should close given the fact that less than a minute to get -- we can't ask a question.

Mike, did you have a question, Mr. Ciarmoli?

Yes. John, not to belabor the point, and I'll try and be quick here with the call closing out. But back to these incrementals I mean you're clearly benefiting from spares demand, a combination of legacy utilization, combination of durability issues. I mean, are you overearning on the aerospace spares now? And is that driving the strong incrementals? Does that normalize at some point as maybe some of these light work scopes or different kind of work scopes kind of trend back to normal?

Well, first of all, in the year, in the short term, pricing into the spares part and that OE part are exactly the same. Over a long-term basis, that are differentiated because of, let's say, parts going to pass model. So no, there's no case of the over-earning in the immediacy. If you go back to previous calls, I have said that what we see is our spares business in total increasing every year for the next 5 years, didn't really want to go beyond 5. We may discuss whether it's always going to be the same angle of increase, but there's no case that I can see where spares don't increase every year through the end of the decade. So that's pretty positive. Thanks, Mike. So it's 11:01. So Drew close the call.